RBA: Surprise looks unlikely – What’s next for Aussie?

The start of the week is dominated mainly by Asia events. Japan is closed today for a holiday, but the Asian session was livelier than expected, with bond markets under pressure and stock markets rallying on trade optimism.

  1. New Zealand meanwhile announced and upgrade to the free trade deal with China.
  2. The US invited ASEAN leaders to the US for a meeting and despite some reported objections from India, Thailand, which currently holds the ASEAN chairmanship said he “welcomed the conclusion of the Regional Comprehensive Economic Partnership (RCEP) negotiations and the commitment to sign the RCEP Agreement in 2020”.
  3. There are reports that US Commerce Secretary Ross will meet with Chinese Premier Li, while Ross also said over the weekend that the US may not have to impose tariffs on auto imports from the EU following “good conversations”.

However, there is a degree of wariness appearing in market narratives, especially on whether the US will cancel planned December tariffs and remove some of the current tariffs, which is what Beijing has been demanding, while China has been baulking at the level of purchases of US agricultural goods Washington has been demanding.

As for central banks actions in Asia, RBA is getting ready for tomorrow’s announcement, while New Zealand will take place next week. The RBA meets tomorrow morning to issue its rate decision, while its post-policy statement is on Friday. The market is anticipating that the bank will hold rates steady at 0.75%.

The markets will be closely watching the statement, for any signals confirming a possible pause of the dovish tone that the bank established since last year. The September’s RBA minutes showed that the central bank remains disposed to further easing, while a month earlier, Governor Lowe said that more easing measures could be needed, despite the rapid 75bp cut so far this year. However, the data look in a better shape despite the aggressive easing, with an unexpectedly strong Australian employment data, slight improvement of inflation and some health signs from housing sector. Hence, Governor might be seen signalling the pause in the easing cycle in 2019 due to the progress in the economic front.

From the technical perspective, RBA decision might not affect significantly the antipodean currency if it comes in line with forecast. However, it has currently paused more than 1-month rally on the anticipation of RBA’s rate decision tomorrow. The Aussie has been appreciated from 0.67 lows to over 0.69, reverting nearly 60% losses since mid-July. In the medium term the asset looks overbought, so a correction could be seen with Support at 0.6880.  The overall sentiment remains positive.

Weekly bias Range next week
Bullish to neutral 0.6850-0.6960

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Andria Pichidi

Market Analyst

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